VTB24: “Georgia Is Our Heaven Market in Terms of Regulation”

The FINANCIAL -- In all of the CIS, Georgia is one of the most rational countries in terms of its banking regulations, Ekaterina Petelina, Deputy President and Chairman of the Management Board of VTB24, told The FINANCIAL.

The FINANCIAL -- In all of the CIS, Georgia is one of the most rational countries in terms of its banking regulations, Ekaterina Petelina, Deputy President and Chairman of the Management Board of VTB24, told The FINANCIAL. VTB Bank Georgia expects to achieve a more than 20% growth in 2014. Implementing online banking, CRM system and efficient collection are the top priorities for the Bank. The developing state of unrest in Ukraine did have an impact on the Bank, but as Petelina said, they have not seen any specific effects because of its relation to Russia.

“From 2012 we have seen many changes coming from the regulators in different countries. Fortunately Georgia is one of the most reasonable countries in this respect. We have seen a limitation of growth in Belarus. We have seen prohibitive conditions for developing auto loans or for developing consumer finance in Azerbaijan. We have seen a serious limitation for the growth of non-collateralized consumer loans in Kazakhstan. And we are now seeing different changes and new regulations in Russia. Sometimes they do not appear be logical or supportive to the healthy development of the market. So, by comparison, Georgia is our haven right now. We grow faster than the market, we are very happy with the way our bank is developing in Georgia and we are expanding our network through partnerships,” said Petelina.

Q. In 2013, VTB Bank Georgia increased the amount of loans issued to individuals by 43.6%. This was the highest index in the market. What is the reason behind this accomplishment?

A. 2013 was a successful year indeed! We grew our Georgian market share of loans and deposits in retail business significantly and did it quickly. I would highlight a few projects we accomplished in particular. First of all, we developed our network of partnerships for point of sale loans very rapidly. To be specific, we opened 164 new outlets last year, including over twenty new auto loan points. Another important accomplishment was the launch of Private Banking as a separate segment. On top of that we built up our Call Center, which is always a very important channel for cross-sale of lending products, and launched a very successful cross-sale campaign. We realize that our business should not be assessed simply product by product, but also by the number of products sold per customer. Focusing on cross-sale was one of the main projects for the retail sector in Georgia, and we were extremely pleased with the fact that it outperformed the business plan both in volume and, more importantly, in terms of financial results. Of course, we as a group are more concerned about the financial results than sales volumes. Yet we still have the ambition to grow faster than the market in the retail business.

Q. How would you estimate the year 2013 for VTB Bank in terms of the other countries you are operating in?

A. VTB Group is present in 6 CIS countries: Russia, Ukraine, Belarus, Kazakhstan, Azerbaijan, Armenia and Georgia. We also have a retail business in Cyprus, mostly designated to our private banking clients. In terms of other European countries, we are present in France, Germany and Austria where we focus mostly on internet deposit gathering. Actually, it was a very successful project. In just two years we reached over EUR 2.6 billion in customer deposits. This is an unusually good result for a Russian bank on such a developed European market.

Still, for our bank, Russia remains the major market: more than 90% of our retail business belongs there. First of all, it’s because of the size of the market itself: Russian retail loans market is more than 4 times bigger than ALL other CIS markets combined. For example, the whole retail market in Armenia is equal to the monthly results for consumer loans of VTB24 and Bank of Moscow (also, belongs to VTB Group). Second, VTB Group market share in Russia is 14%, which is higher than in most other regions. The only country, where our market share is higher is Armenia (16%). In Georgia we are getting close to 5% thus far, with more impressive numbers to come for sure.

In 2013 the Russian banking market showed a very significant growth of 28%. It would have been sufficient for a mature business to match such growth, yet I am proud to say that VTB24 and the Bank of Moscow grew 40%! For VTB24 it was partially achieved by merging TransCreditBank, the captive bank of Russian Railways that had over 2 million retail clients. Bank of Moscow, in its turn, also delivered an outstanding 40% growth in loans. In deposits we also grew much higher than the market, which was 19%, delivering over 35% growth at VTB24 and 25% as a group combined. As a matter of fact, we have had faster-than-the-market growth in every country of operation apart for Ukraine. We are very happy with our developments in Kazakhstan and Azerbaijan where we achieved profitability this year. We are also satisfied with our achievements and market share growth in Armenia and Belarus. We see the retail sector as very profitable and effective, so it is very important for the Group to increase the share it comprises in our overall portfolio. Corporate business has its benefits, but it simply cannot provide the kind of margins retail affords, if handled properly.

Q. How has the ongoing unrest that started in Ukraine in November 2013 affected your business?

A. Ukraine is a very difficult market not only for our bank. If we refer to 2013 with the exception of the recent developments, the market grew pretty rapidly but the cost of risk was very high and was continually increasing. The market grew pretty substantially but it was concerned with non-collateralized consumer loans, with very light credit assessment procedures. This is a space in which we do not want to compete. We remain focused on what we call “salary projects”, lending to our corporate clients with good credit history. We have over 500,000 clients in Ukraine which is quite a good customer base. We have slightly lost our share of the market but we are not too concerned about it, because for us profitability is more important. As for current development, the number one issue is liquidity. We do not have any problems so far but we are watching it closely. People were scared, they wanted to withdraw their money, put it in the same bank’s deposit boxes and then wait until they feel safe to return the funds to their deposit accounts later. Of course, it caused deposit withdrawal to be higher than usual at first, somewhat subsiding now. We did take certain actions, like suspending lending and marketing activities, as they simply don’t make much sense right now. However, it must be said that despite such issues we still do not see any major negative impacts because of the bank being Russian. It was the same for us regarding Georgia during 2008. It is very valuable for us that the people are not as involved in politics when it comes to their banking: if they like the bank, like the products and the quality of service, then they will continue doing business with us regardless. That is why I love retail so much. Retail is outside of politics, based purely on the products and services you deliver. Like any of the other banks in Ukraine, right now we are watching how the regulations and the situation will develop.

Q. Does consumer behaviour vary by country?

A. One might think that the retail business would be very diverse as all people are different depending on their national mentality as well as other ethnic peculiarities, and this assumption is both true and false at the same time. People are people and this is still the number one rule. In all countries people save money, borrow money and they have transactional needs. They want to buy apartments, cars, appliances, go on vacations and provide good education to their children. These are the universal facts that apply to us all, which leads to retail banking products and services to be rather similar. However national circumstances still matter. I would pick out three distinguishing features in terms of countries: regulation, competition and national mentality. For example, we do not have pawn loans in Russia. Meanwhile it is popular in Armenia. Mortgage loans are more popular and developed in Russia in comparison to other countries. So, “copy and paste” does not apply in this respect but “look and share” does. In this respect it is very rewarding that we have a big international group. In VTB we have matrix management system - we share our practices and learn from each other. Our business in every country is handled by a local manager. Archil Kontselidze runs our bank in Georgia and it is his responsibility. However, Mikhail Zadornov and I, as his deputy, are responsible for retail strategy and managing retail business in the whole VTB group (Russia, CIS, Georgia, Europe). So we are sharing our experience with Archil, propose new ideas and technologies to secure further business improvement, while relying on his local expertise and his feedback. This model is very rewarding both in terms of teamwork and business efficiency.

Q. Do you think that banks should be the main drivers of the economy?

A. The banking sector is a big part of the infrastructure, like a circulatory system, for the development of the economy. It cannot be the driver, however it is a supporter. For example, during 2011-2013 the development of retail lending in Russia was partially responsible for GDP growth. Simply because people started consuming more – we all know how the machine works. However, not to be short-sighted we should understand it cannot be the only driver. If we talk about corporate banking and investment banking, we are happy to lend, but there need to be responsible borrowers with reliable business plans to make it productive. This money should fund industry development and creation of other layers of the market infrastructure. Banks are there to fund and support the process, but they can’t do the work.

Q. Short maturity and high interest rates on credits still remain the main problem in the Georgian banking sector. How can these be solved?

A. Interest rates are a combination of different factors. It’s funny when people ask for mortgages to be provided at 4% and deposits at 10%. Also, if you have 6-7% inflation you cannot offer 4% on a mortgage. If we talk about retail, what is the interest rate for your loan? The first part is funding: availability and cost of money in the system and for a particular bank. The second part is the risk. Of course it depends on the product. Mortgage is very different from consumer finance and the level of risk varies market by market. For example in Belarus people are very disciplined in terms of paying back. It is in their national mentality. This is how they live and how they pay. We have a very different story in Ukraine. Infrastructure also plays a big role. If you have credit bureaus, banks can share their knowledge. Integration with pension funds is a way for the bank to check the customers’ salaries and make more accurate customer profiles. When reliable and less reliable customers are distinguished it permits one to reduce the rates for loyal customers. Cost is the third factor, which does not only depend on the bank, as many tend to think. It does partially, because digital channels, internet banking and ATMs reduce the costs for banks which allows to then reduce the rates. Yet it also depends on the magnitude of the market. When there are fixed rates and big businesses, cost of products gets reduced. It also depends on the Central Bank’s regulations, even as seemingly insignificant as the period of time a bank should keep its archive. With 13 million clients at VTB24 this task is more difficult and costly than one would imagine. We have 200,000 clients coming into our branches daily, so if you need to keep paper records of each transaction for 5 years, it becomes a major burden. So, in the end the costs are not only the bank’s, but the regulator’s responsibility as well.

So, loans can be made more affordable in a more developed banking sector with increased operational efficiency, overall rate of inflation improvement and the infrastructure development.

Q. Which are the latest trends of the banking industry?

A. I would underline multichannel approach and segmentation. Multichannel approach is a wonderful thing that we are working hard to develop continually. Partially it is the development of digital channels. It incorporates internet and mobile banking, and also ATMs. One of the drivers behind the electronic channel consumption is the reduction of cost for the bank. Banks want to make their business digital and automate as many transactions as possible. However, the most important reason is that customers want it as they become more mobile and internet-bound. It is very convenient for them for example to manage accounts, open deposits, make credit requests and transfer the money the same way they use other services online, such as for buying tickets or booking hotels, and they often need to do it all at the same time. They love handy banking and it makes sense! The statistics of our customers show that the users of alternative channels are more satisfied. And it’s a win-win situation, because it is more profitable for banks, as customers buy more products. The ties between bank and customer become closer. For us the customers who use our Telebank (VTB24 Internet bank) are four times more profitable. The multichannel model is about understanding what customers want to do through a particular channel and what you as a bank want them to do through this channel depending on the customer segment. So we pave the way for our customer’s journey and make sure it’s smooth and integrated as much as possible. A segment-oriented approach helps you to do two things: first is to deliver the right product segment by segment because they are different and have different needs and profitability. Second - to deliver the right service model to insure maximum satisfaction and customer loyalty on the one hand and maximum efficiency for the bank on the other.

Q. What are the plans of VTB Georgia for the current year?

A. This year we expect to have a more than 25% growth in retail loans. We plan to outperform the market significantly. In terms of deposit portfolio we expect to have a slightly lower growth. Regarding the products, we will develop Internet banking and everything related to the multichannel model. Further development of cross-selling initiatives and CRM will also be our priority for 2014. We have around 250,000 clients and it is a solid customer base platform. One more very important project is implementing a new collection system. The cost of your risk does not only depend on your underwriting qualities. It also depends on how well you collect it. We have a very good system in VTB24 which we are going to launch for all other countries of presence, including Georgia, by the end of 2014.

Q. On the Georgian labour market men still dominate in terms of holding positions of leadership. What is the situation like in Russia in this respect and what are the main reasons for this trend?

A. In post-Soviet countries we are used to the reality that women usually work. The majority of females in Russia are employed, but the chances of getting a top position does depend on the sector: there are differences in gender approach between Oil&Gas, Metallurgy and Finance, for example. At VTB24 we have two female board members. Two out of ten may not seem like a lot, but it’s quite a strong representation for our part of the world and definitely higher than average. VTB Board now also has two women. When I worked in VTB our HR-department said that the overall percentage of females in VTB bank was 53%. But in terms of positions of leadership such as heads of departments, the percentage of women dropped down to 20. I have to say, though, that Andrey Kostin, President and Chairman of the Management Board at VTB Bank, has always been very supportive in promoting women who showed professionalism and dedication. He even publically admitted that he considers women to be more loyal, selfless and oriented to the company’s interests than men in general. In my opinion it depends, of course. The two main factors which I believe helped me, personally, are helping people grow and building consensus. Building a good team is number one priority, because there is too little you can do on your own. There has been a number of times when I let my team members develop and then gave them an opportunity to change the position. Now they are in different positions all over the VTB Group and give me much appreciated advice and support, which is very rewarding. The second is using the female capability of finding ground for consensus. I think that is the only thing that works in the long term. One can try to constantly push his colleagues and his boss to accept his decisions and points of view, but it will only work sometimes, and probably as often it will work against him. No strategy can be implemented, no matter how good you think it is, without sufficient team support. The business needs to “buy in” and accept the approach for it to work. So making the effort to understand conflicting points of view and aiming at consensus is extremely important to continue moving forward in the long run.

Q. You joined VTB Bank in 2006 and since then you has passed through various stages of the career ladder. What are the goals you plan to achieve by working at VTB Bank?

A. Switching from VTB to VTB24 was a big move for me. At VTB I was a head of strategy. Here, at VTB24, I am the head of a big business, responsible for retail products, SME and international retail strategy. It is a bigger responsibility comparing to strategy development, because it’s not only about providing a good plan, it’s also about providing a good P&L! So my new challenge is to be an effective and successful business leader who can plan well, bring the team together and deliver uncompromised results, setting new benchmarks in banking retail for all of our markets.